Is your organization thinking of moving from an anniversary to an annual compensation review model? Here are some tips for making sure it’s a smooth shift.
Annual vs. Anniversary Salary Reviews
Though there are pros and cons to both models of employee salary evaluations, most organizations will find that an annual model is easier to manage because efforts are predominantly focused around one time per year for everyone. This makes it easier to align performance review with annual merit adjustment exercises. However, our experience tells us it works well in smaller environments and that often organizations with thousands of employees prefer an anniversary model. The reason here is manager time: it’s simply too time consuming for managers with large teams to get through this process when it’s done once time per year. Clearly there are pros and cons to both models; however, most organizations are looking to simplify planning and align corporate budgeting and reporting, and this means streamlining salary reviews cycles and processes.
If your organization is on an anniversary model, transitioning to an annual model can be a challenge, as employees will have come to expect (and even rely upon) their annual reviews. emPerform is built to accommodate any review model, from annual, to anniversary, to even monthly; however, we have found that companies using an annual, focal salary review model tend to get through it quickly and painlessly, and so it is most often worth the shift.
Here are some tips for ensuring that the transition to an annual (focal) salary and performance review model takes place as smoothly as possible:
1. Iron-Out the Details First
Before embarking upon this transition, your organization has a lot to consider. When will annual reviews take place? At the end of the fiscal year — or at the end of the calendar year? When will employees be notified and how will expected salary increases be handled? And though annual reviews will occur at the end of the year, periodic reviews and check-ins will also need to be scheduled so that employees have a better picture of their current performance and able to work with their managers to ensure goals and expectations are on-track. How will these be handled and by whom?
When planning out the details, an organization must consider the primary difference between an anniversary and an annual model. It is not timing. Rather, it is expectations.
An anniversary model seeks to reward an employee for another year with the company; the emphasis is on providing the employee with structured and scheduled benefits.
An annual model seeks to reward the employee’s yearly performance with the company; the emphasis is on analyzing the employee’s direct contributions and quantifying their impact on the organization.
Altogether, this means that an organization that is transitioning to an annual model of employee review will also need to be prepared to handle increased analysis of employee performance, especially in relation to other employees.
2. Prorate Your Employee’s Scheduled Increases
A major consideration here is the merit review process. One advantage of moving from an anniversary to annual is that it will make it easier to align the merit guidelines with the organization annual financial budget.
For the purposes of employee satisfaction, it’s often desirable to prorate scheduled increases in the first year of implementation. This means if someone has traditionally received a merit review in June, they would still get their merit review in June. However increases would be prorated for the amount of time until their first annual increase. If the annual merit process is to take place in January, then the employee with June merit would receive 50% of the eligible merit in June and then they would move to annual process thereafter. The following January they would eligible for another merit review at 100% and then it would every 12 months thereafter.
3. Communicate Clearly and Transparently
Every critical business transition requires clear communication — and this communication begins from the top down. An organization should work closely with its financial department and its lead managerial staff, both to determine whether a focal review vs anniversary review will be more effective and to ensure that the transition is completed smoothly. If the top management of an organization has concerns about deploying a new system of salary reviews, it’s generally worthwhile to listen to the concerns and to address them early on. Managerial staff will understand their employees and their needs.
Once the decision has been made to transition to an annual model, employees need to be brought on board in a clear and transparent fashion. This includes outlining the expected benefits and potential consequences that will be felt by employees.
At this time, employee concerns can also be addressed before the transition occurs. If the organization has chosen to prorate their anniversary reviews, the employees should be made aware of this.
4. Create a Reasonable Timeline
Apart from managing employee expectations, companies are going to have to create a workflow for their new business process. This will include modifications to financial analysis and budgeting, new software solutions for better management of annual reviews, and integration between Human Resources, Payroll, and Finance departments. Construct a reasonable timeline for the organization’s transition, which will include the following steps:
- Building a framework of business processes and workflows regarding the analysis and reporting of employee performance.
- Developing a schedule of employee reviews, both throughout the year (often quarterly) and annually.
- Re-assessing financial budgets, both related to the costs of the transition and the future projected expenses.
- Integrating the Human Resources, Payroll, and Finance departments.
- Connecting with upper-level management and applicable departments regarding the above timeline.
Ideally, the above steps will handle the transition with as little disruption as possible to an organization’s employees. The Human Resources, Payroll, and Finance departments will all be prepared to handle the transition as it occurs, and employees will still be able to acquire their previously earned benefits while also working towards the goals of the new model. All decisions should be made with the express goal of both minimizing impact to the organization and ensuring that the organization’s needs, both in the present and in the future, are fully met.
Though a transition in review model can seem difficult, the rewards to the organization will usually exceed any temporary issues regarding productivity and employee satisfaction. Through annual models, companies will be able to more predictably analyze and control the performance of their employees, and will be able to future-proof their review system for the purposes of scaling upwards. If your business is looking to improve upon its employee productivity and performance, it can do so by further refining and streamlining this and similar human resources processes.
If you are looking to make the leap from anniversary reviews to annual reviews and would like to discuss the tools available to support annual pay-for-performance planning and ongoing performance check-ins, contact emPerform.